Answer:
Question Aa. Alternative 1–$1,253,600
Alternative 2 –$1,230,300 
Differential effect $ 23,300 
b.The company should replace the old machine. 
c Sunk cost $250,400
Question Ba. Alternative 1–$488,000
Alternative 2 –$466,000 
Differential effect $ 22,000 
b.The company should replace the old machine. 
c Sunk cost $250,000
Explanation:
Question Aa. Preparation of a differential analysis dated September 13
DIFFERENTIAL ANALYSIS 
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) 
September 13
 
Continue with Old Machine (Alternative 1); Replace Old Machine (Alternative 2) ; Differential 
on Income (Alternative 2) 
Revenues: 
Proceeds from sale of old 
machine $ 0 $64,500 $64,500 
Costs: 
Purchase price 0 –$483,600 –$483,600 
Variable production costs (8 years)–$1,253,600 –$811,200 $442,400
($156,700*8=$1,253,600)
($101,400*8=$811,200)
Income (Loss) –$1,253,600 –$1,230,300 $ 23,300 
 
b. The company should replace the old machine. 
c. Calculation for The sunk cost
Using this for formula
Sunk cost= Book value- Accumulated 
depreciation
Let plug in the formula
Sunk cost=$601,300-$350,900
Sunk cost=$250,400
Question Ba. Preparation of a differential analysis dated September 13
DIFFERENTIAL ANALYSIS 
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) 
September 13
 
Continue with Old Machine (Alternative 1); Replace Old Machine (Alternative 2) ; Differential 
on Income (Alternative 2) 
Revenues: 
Proceeds from sale of old 
machine $ 0 $231,000 $231,000 
Costs: 
Purchase price 0 –$545,000 –$545,000 
Variable production costs (8 years)–$488,000 –$152,000 $336,000
($61,000*8=$488,000)
($19,000*8=$152,000)
Income (Loss) –$488,000 –$466,000 $ 22,000 
 
b. The company should replace the old machine. 
c. Calculation for The sunk cost
Using this for formula
Sunk cost= Book value- Accumulated 
depreciation
Let plug in the formua
Sunk cost=$600,000-$350,000
Sunk cost=$250,000